819.74/257

Memorandum by Mr. George R. Merrell, of the Division of Latin American Affairs, of a Conference With President Arias in the Secretary’s Office, October 9, 1933

[Present:] President Arias
The Secretary
The Secretary of War
Admiral Standley, Chief of Naval Operations
Assistant Secretary of State Caffery
General Mac Arthur, Chief of Staff
Mr. Edwin C. Wilson
Major Gruber
Commander Duncan
Mr. Merrell

The Secretary suggested that since all three departments were interested in the control of radio in Panama that that subject might be discussed first.

[Page 854]

President Arias said that although the basic Treaty of 1903 did not mention radio, Panama recognized its obligation to help in the defense of the Canal in this respect but did not feel that it need be submitted to the indignity of not being able to control commercial radio in Panama when the defense of the Canal was not involved.

Admiral Standley stated that while the Army and Navy were perfectly willing that Panama should have her own broadcasting station, ship to shore traffic was another matter. He maintained that during war time the Navy must handle all radio traffic and that in peace time the radio traffic regarding the transiting of the Canal must be handled by our Government and that it was contrary to the best interests of the Canal to have duplication in the ship to shore traffic. Admiral Standley added that radio control was provided for by treaty.

President Arias said that this was not true and that he could ask some of the other gentlemen present on this point who were more familiar with the subject.

President Arias then said that the United States Government was engaged in commercial business in Panamanian territory in this respect and that he would appreciate it very much if the radio experts could study the matter further, considering war time and peace time restrictions in separate categories. He said that if they decided that such service was a real danger to the Canal, he would not ask that commercial interests be allowed to handle it.

Admiral Standley believed that it was necessary to maintain this service in peace time or otherwise the Navy, through lack of practice, would have difficulty in taking it over in war time.

President Arias said that he did not see why Panama should pay for the Navy’s practice in this respect. He said that he hoped that some means could be found for regulating this matter so that during peace time the interests of neither country would be injured.

It was arranged to have Captain Hooper of the Navy Department call on President Arias at the White House this afternoon in an effort to explain the matter further to President Arias.

President Arias said that Panama had absolutely no objection to the Canal Zone employees buying goods at the cheapest price they possibly could. He frankly admitted that merchants in Panama would doubtless have taken advantage of persons residing in the Zone had the Commissaries not been provided for. He said that in his opinion, however, the cooperation of the Zone authorities in protecting and aiding Panamanian commerce was not as effective as it might be. He suggested that sales in the commissaries and post exchanges might be restricted to permanent employees, i. e. that sales not be made to Government employees and their wives who happen to be passing through the Canal or temporarily visiting the Isthmus. He also [Page 855] suggested restriction of sales in the “silver” commissaries to permanent employees as compared with those employed for only a few months’ time and that means should be found to protect bona fide “silver” employees in purchasing what they legitimately need and still protecting Panama from the introduction of goods bought beyond their needs. He also suggested the possibility of closing the “silver” commissaries. He cited the cases of West Indian families where two or three members of one family contrived to make purchases although it was against the regulations for more than one member of a family to have commissary privileges. He said that this situation arose through common law marital arrangements.

President Arias remarked that cigarettes were sold in commissaries, restaurants and post exchanges without excise tariffs for from four to six cents a package. He understood that the sale in the Zone was 4,400 packages per capita per year whereas in the United States, the greatest cigarette smoking country in the world, it was less than 800 per capita per year. He estimated that if the United States excise tax were applied to the cigarette sale in the Zone it would bring in an annual income of $750,000 which is $500,000 more than the annuity paid by the United States to Panama.

President Arias then mentioned various other activities of the Panama Railroad, such as laundries and cleaning and pressing establishments. He said that passengers aboard ships could send their suits to be pressed by Government establishments for 25 cents less than they could be pressed in Panama and that this was business which legitimately should belong to Panamanians. He also hoped that as many materials as practicable imported into the Zone could be purchased in Panama. He mentioned cattle particularly and said that he thought even if it was necessary to pay a little more for cattle there than elsewhere, the Zone authorities should buy Panamanian beef in order to foster the industry in that country in order to have a reserve supply in time of war.

President Arias stated that with the exception of about nine blocks, the Panama Railroad owned all of Colon and paid no taxes on the property even though this property was rented for profit and the sections occupied by Americans, were policed by Panama at no expense to the American Government. As a legal question Panama maintains that these lands have reverted to Panama and that they have not been delivered. He said that there were three different views on this subject:

1.
That the lands owned by the Railroad would revert to Panama in 1966.
2.
That all lands not used by the Railroad in 1904 reverted to Panama at that time.
3.
That the property resulting from fills made on the Island, upon which Colón is built, by the United States and which are leased by the Railroad for more than $200,000 per year could not be owned by the Railroad or the United States since the fills did not exist at the time of the contract between the Colombian Government and the Railroad.

President Arias explained the monopoly held by the Railroad for a highway across the Isthmus and said that Panama would like to obtain permission to build the portion of this highway from Colon to the Madden Dam in order to give employment to the large number of unemployed laborers on the Isthmus. He added that he understood that this matter was now being discussed in diplomatic correspondence.

The Secretary of War asked President Arias if Panama felt that we were exceeding our treaty rights.

President Arias replied that his Government did not take this view—that it was simply a question of adopting more liberal administrative measures.

The Secretary said that the three departments would be pleased to consider these matters and that he might later call on President Arias for further consultation.

President Arias said that he would be available at any time.

G[eorge] R. M[errell]